Building Questions To A Master Builder
Series Six

Hello,

Colm here ..

A few months ago my readers asked me building questions as a basis for an interview with a US Master Builder.

Here's a reader who is starting his own development company and has some very specific questions.

Question 1.

Single family Housing prices have been on the rise for some time. I have a general interest in what his outlook is over the next 3-5 years for real estate development and sales in the US. In resort or retirement areas. I'm looking in the North West near Canada.

Answer

As those in Oregon will tell you -- they're being overrun with Californians. There is a growth pattern to the North West. My personal opinion is that Oregon, Washington, Wyoming, etc… are going to be the next frontier as places like FL & CA become over built.

Question 2.

I am just starting a development company with my brother-in-law. We have an excellent property (just purchased) which we look to develop 10 upscale town homes overlooking a popular golf course.

There is high demand in this price range and inventory is low to not available. We have contacts with local Realtors and are looking to develop a business arrangement for the listing of the various units (in phases).

Does he have any suggestions on how we might approach a Realtor to reduce sales commission without hurting sales. For 10 units at $800K per we are looking at $480K (6% total commission) so some saving would be welcome.

What might we expect in terms of a discount for a local RE broker.

Answer

Our personal philosophy is to never ask for reduced commissions from professionals. If they're good enough for you to hire them then they're good enough for you to pay them what they're worth.

(Colm agrees totally - I have never reduced a professionals fee in my life - I have been offered very competitive fees by professionals, but only because they have worked with me before and know that they are not going to be messed around by poor management.

I am into giving incentives - on top of commissions - I want all my jobs to be successful for all people associated. I go to the trouble of asking each professional, "was the job profitable for you?" - that is how you get and keep a successful Team - word spreads and others want to work for you.

How do you think the guys who are on the Team respond - they never let you down - they, in fact, protect the job, as though it is their own project.)

Their jobs are very difficult and cost them money to advertise, market and promote your project. Instead, I would recommend that you offer bonuses on top of their regular commission for results. This will make them work harder for you.

The more motivated a Realtor is to sell your properties the faster you'll sell them. Look at how much you're paying in fees and loan costs holding on the property.

In our case, we show Realtors we work with how to sell the homes before they are completed. We can also show developers how by working with us and following our recommendations they can pre-sell the home and still make the intended profit.

You'll find that when you pre-sell the homes you're commission is reduced down to about 3%.

The reason is that you're not paying a listing fee and reduced advertising costs. Keep in mind that unless you're working directly with the broker/owner of the agency -- the agent is only making about 1.5% of the commission.

(Colm: Can you see that he has learned how the system works and responds with ideas that helps his developer clients as well as the agent.

I hate to say it but, ... the hardest work we have to do ids "think" ... I read that somewhere once!!)

The place to ask for concessions, if you're going to ask for them, is on the broker's cut.

A lot of brokers won't appreciate this advice. However, the way I see it, the person actually doing the work (the agent) should be paid the best.

The agent could go to another broker and work out a deal with you in their pocket already. So a percent of something is better than no percent.

You're best bet with choosing a Realtor is to choose one who specializes in selling to the affluent. You're selling upper income homes. They know how to locate these buyers quickly.

The other place to save money is with your builder. According to the National Association of Builders 20% of a project goes to mistakes or mismanagement by the builder.

************************

Lot's of good advice in this Q& A session. Let me know if you have any follow up questions.

Bye,

Colm Dillon


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